Out-Law / Your Daily Need-To-Know

Out-Law Guide 3 min. read

Garden communities: procurement and construction contracts

Local authorities working to deliver garden community projects can encourage the private sector investment needed to deliver aspects of the scheme by devising a robust procurement strategy.

Any procurement strategy must be multi-faceted to ensure comprehensive development and appropriate risk allocation across the project, and address landholdings on the planned sites.

Local authorities should look to existing procurement frameworks that have been established in the public sector as these will provide them with ready access to a list of prospective suppliers. However, a project-specific procurement process will often need to be undertaken.

It is likely to be attractive for local authorities to run a procurement process that allows prospective suppliers to shape the potential solutions and desired outcomes. Such processes tap into the ideas and expertise available in the market and can result in a higher quality delivery and improved commercial return for the public sector.

Central to the success of the process will be the ability for the procurement and the resulting contracts to respond to evolving circumstances and to be “packaged” appropriately to correspond with the master delivery programme. Despite best planning, unforeseen circumstances can arise which have the potential to create uncertainty and risk within the process. Mechanisms can be put in place to identify issues at an early stage and address them within the procurement process or contract, as appropriate.

Construction works and contracts

Construction works for garden communities need to be carried out in phases. It is important that the underlying construction contracts are packaged accordingly and that this ties in with the broader delivery and procurement strategies for the project and further aligns with the bundling of section 106 planning obligations and other planning conditions to minimise site-wide indemnity issues.

Central to the success of the process will be the ability for the procurement and the resulting contracts to respond to evolving circumstances and to be “packaged” appropriately to correspond with the master delivery programme

Early-stage construction works will typically focus not on new building houses but on developing the significant infrastructure needed to support garden communities, such as the construction of new roads and installation of utilities. This infrastructure will often require negotiation with other regulated providers such as Network Rail and highways authorities.

Where a road bridge is to be built over the rail network this will involve a negotiation with Network Rail and, where these works are being carried out by local authorities or private sector developers, those organisations will need to enter into an asset protection agreement to safeguard the rail assets. If Network Rail will carry out the works, development service agreements or implementation agreements will need to be entered to fund the works and provide recourse for non-performance of contractual obligations by Network Rail.

With highways, local authority or private sector developers will need to analyse which body is best placed to be the client for a project. They will then need to create a contractual matrix to ensure other stakeholders provide funding to the project client and receive warranties from contractors and consultants.

On long term projects such as garden communities, different forms of contract are usually required to facilitate the development of new infrastructure beyond the common procurement approach taken for residential development. There is also increasingly the need to reflect changes in the market as new construction techniques arising from modern methods of construction become more prevalent.

The traditional approach is for the contractor to be responsible for the design and construction risk through a design and build contract. However, the use of modern methods of construction including modular construction, where significant amounts of the project value are being undertaken by specialists, is leading to revisions to this approach since the modular providers may not be prepared to take the full construction risk. There may also be a role for partner arrangements, with greater use of construction management models where specialists are responsible for their own packages.

Collaborative contracting models are also increasingly popular. The Crown Commercial Services framework (CCS), Pagabo and Scape are examples of existing frameworks which authorities can explore in this regard. The CCS framework is based on the alliancing model of contracting and enables an authority to create its own framework or alliance. This allows it to enter into long term commitments and for value to be driven through the supply chain.

In addition, as well as bespoke models of alliancing contracts, there is now an NEC alliancing contract which is being used increasingly as the basis for collaborative models. Local authorities will want the right to approve the contractual structure and receive warranties. The authority will remain as the freeholder and must have the ability to intervene and complete a project if the original developer and its funder cannot do so.

Pinsent Masons has asked 70 market participants about garden communities, and you can find out what they said in our results (40-page / 5MB PDF). And you can find out more about a step by step approach to garden communities in this guide (40-page / 6MB PDF).

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